Transaction costs and equilibrium pricing of congested public goods with imperfect information

Abstract

This paper examines the role of transaction costs in pricing a congested public facility which can be used with variable intensity when there exists information asymmetry between consumers and firms. If a per visit price (toll) requires a large transaction cost of toll gates, a lump-sum price (season ticket price) may be used in equilibrium. However, under the lump-sum price together with imperfect information, high demanders (in terms of visits to the facility) have an incentive to patronize facilities designed for low demanders to exploit a price difference. Thus, an adverse selection problem may arise, and equilibrium is in general inefficient, depending on the magnitude of the transaction cost.